Trade through endogenous intermediaries

We apply an intermediation game of Townsend (1983) to analyze trade in an exchange economy through endogenous intermediaries. In this game, each trader has the opportunity to become an intermediary by oering to buy or sell unlimited quantities of the commodities at a certain price vector and for a certain group of customers subject to feasibility constraint. An intermediary will not be active unless some of its customers subsequently choose to trade with it. We introduce an "intermediation core" and show that the subgame-perfect equilibrium allocations of the intermediation game are contained in the intermediation core, similar to the inclusion of competitive equilibrium allocations in the core usually studied. We also identify, in terms of the supporting intermediary structures, intermediation core allocations which are also subgame-perfect equilibrium allocations of the intermediation game. These results provide both a characterization and welfare properties of subgame-perfect equilibrium allocations of the intermediation game.intermediation; core; subgame-perfect equilibrium

Financial Intermediation in Muslim Community: Issues and Problems

It is widely known that Muslim society inherited an interest based financial intermediation system from others instead of developing their own banking system. However, Muslim Economists and scholars around the world made efforts to have and develop their own financial intermediation since there was no initial working model to act upon, except the belief that interest-based financial intermediation might be replaced by an Islamic one on the basis of profit-and loss sharing. During the last four decades, Islamic financial intermediation industry became a reality that the Muslim society around the world can see and practice. However, the Islamic financial intermediation in the world has been facing numerous problems of challenges. It raises a number of issues and potential problems which can be seen from the macro and micro operational point of view. Developing the Islamic financial intermediation depends on clarifying these issues and presenting them in order to focus on them studying and remedying. This paper aims to cover the ground of issues of Islamic financial intermediation that rose during its short age. Such issues prevent Islamic financial intermediation from its operating with its full efficiency level. Even no attempt to remedy these issues, presenting these issues and problems and classifying them according to their type is very valuable for sustained growth and development of the Islamic financial intermediation. Such work is a valuable contribution to build the Islamic financial intermediation industry on sound theoretical foundations.

Intermediation, Compensation and Collusion in Insurance Markets

Recent events involving major insurance companies and insurance brokerage firms highlight substantial incentive problems in commercial and reinsurance markets where intermediation takes place. We show that in markets with informed as well as uninformed consumers and heterogeneous risk profiles intermediation has the potential to improve social welfare. However, since intermediation reduces insurers’ market power, incentives for tacit collusion are higher compared to markets without intermediation. A controversial matter in the discussion concerning insurance intermediation is the issue of compensation customs. Our analysis provides explanations for the counterintuitive observation that brokers are usually compensated by insurance companies. The rationale for the latter is the fact that a fee paid by uninformed consumers limits the insurers’ ability to extract rents from informed consumers.insurance; brokerage; collusion; compensation; information

Finance and growth in a bank-based economy: is it quantity or quality that matters?

With this paper we seek to contribute to the literature on the relation between finance and growth. We argue that most studies in the field fail to measure the quality of financial intermediation but rather resort to using proxies on the size of financial systems. Moreover, cross-country comparisons suffer from the disadvantage that systematic differences between markedly different economies may drive the result that finance matters. To circumvent these two problems we examine the importance of the quality of banks' financial intermediation in the regions of one economy only : Germany. To approximate the quality of financial intermediation we use cost effciency estimates derived with stochastic frontier analysis. We find that the quantity of supplied credit is indeed insignificant when a measure of intermediation quality is included. In turn, the efficiency of intermediation is robust, also after excluding banks likely to operate in multiple regions and distinguishing between different banking pillars active in Germany. --Finance-growth nexus,financial intermediation,regional growth

East India Company and Bank of England Shareholders during the South Sea Bubble: Partitions, Components and Connectivity in a Dynamic Trading Network

A new dataset, in the form of a network graph, is used to study inventory and trading behaviour amongst owners of East India Company (EIC) and Bank of England (BoE)stock around the South Sea Bubble. There was a decline in market intermediation in which the goldsmith bankers were dominant in 1720, but foreigners and Jews to some extent restored intermediation services after the Bubble. Company directors temporarily helped to sustain intermediation in 1720 itself. Whereas before and during the Bubble intermediation was largely in the form of brokerage, after the Bubble dealership noticeably began to displace brokerage.South Sea Company; Financial Revolution; social networks, financial intermediation, inventories.

FINANCIAL INTERMEDIATION, ENTREPRENEURSHIP AND ECONOMIC GROWTH

This paper presents a simple general equilibrium model of financial intermediation, entrepreneurship and economic growth. In this model, the role of financial intermediation is to pool savings and to lend the pooled funds to an entrepreneur, who in turn invests the funds in a new production technology. The adoption of the new production technology improves individual real income. Thus financial intermediation promotes economic growth through affecting individuals’ saving behaviour and enabling the adoption of a new production technology.financial intermediation, entrepreneurship, economic growth

The Effects of E-commerce on the Structure of Intermediation

The paper questions the notion that the diffusion of electronic commerce will lead to disintermediation. Rather than interpreting intermediation as a single service it is pointed out that intermediaries can provide a number of services. The analysis based on the New Institutional Economics, Market Microstructure Theory, and Information Economics shows that the three intermediation services studied are, generally, not under threat by the diffusion of electronic commerce. The overall effects on intermediation depend on the relevance of these services relative to others (e.g. order processing) which are supposed to become obsolete.B2C eCommerce, intermediation, new institutional economics

Financial Intermediation

The savings/investment process in capitalist economies is organized around financial intermediation, making them a central institution of economic growth. Financial intermediaries are firms that borrow from consumer/savers and lend to companies that need resources for investment. In contrast, in capital markets investors contract directly with firms, creating marketable securities. The prices of these securities are observable, while financial intermediaries are opaque. Why do financial intermediaries exist? What are their roles? Are they inherently unstable? Must the government regulate them? Why is financial intermediation so pervasive? How is it changing? In this paper we survey the last fifteen years' of theoretical and empirical research on financial intermediation. We focus on the role of bank-like intermediaries in the savings-investment process. We also investigate the literature on bank instability and the role of the government.

How Should Financial Intermediation Services be Taxed?

This paper considers the optimal taxation of savings intermediation and payment services in a dynamic general equilibrium setting, when the government can also use consumption and income taxes. When payment services are used in strict proportion to final consumption, and the cost of intermediation services is …xed and the same across …rms, the optimal taxes are generally indeterminate. But, when …rms di¤er exogenously in the cost of intermediation services, the tax on savings intermediation should be zero. Also, when household time and payment services are substitutes in transactions, the optimal tax rate on payment services is determined by the returns to scale in the conditional demand for payment services, and is generally di¤erent to the optimal rate on consumption goods. In particular, with constant returns to scale, payment services should be untaxed. These results can be understood as applications of the Diamond-Mirrlees production e¢ciency theorem. Finally, as an extension, we endogenize intermediation, in the form of monitoring, and show that it may be oversupplied in equilibrium when banks have monopoly power, justifying a Pigouvian tax in this case.Financial intermediation services, tax design, banks, monitoring,payment services

How Should Financial Intermediation Services be Taxed?

This paper considers the optimal taxation of savings intermediation and payment services in a dynamic general equilibrium setting, when the government can also use consumption and income taxes. When payment services are used in strict proportion to final consumption, and the cost of intermediation services is fixed and the same across firms, the optimal taxes are generally indeterminate. But, when firms differ exogenously in the cost of intermediation services, the tax on savings intermediation should be zero. Also, when household time and payment services are substitutes in transactions, the optimal tax rate on payment services is determined by the returns to scale in the conditional demand for payment services, and is generally different to the optimal rate on consumption goods. In particular, with constant returns to scale, payment services should be untaxed. These results can be understood as applications of the Diamond-Mirrlees production efficiency theorem. Finally, as an extension, we endogenize intermediation, in the form of monitoring, and show that it may be oversupplied in equilibrium when banks have monopoly power, justifying a Pigouvian tax in this caseKeywords:financial intermediation services ; tax design ; banks ; monitoring ;payment services JEL Classification: G21 ; H21 ; H25